Frequently asked questions about mutual funds
I have given a lot of lectures about mutual funds for women. I like mutual funds because, if you do your research you can purchase low-cost and low-risk mutual funds on your own. Mutual funds are easy to understand and invest in. You can do it yourself once you have done some research. Here are five of about twenty-five of my most frequently asked questions about mutual funds by women I lectured to. After a few decades of successfully investing in mutual funds, I felt it is only fair that I share my expertise with you.
- ARE MY MUTUAL FUND INVESTMENTS GUARANTEED AT ALL?
Insurance is provided by the SIPC, which covers fraud. In other words, if you invest your money in company “C”, a registered investment company (registration with finra should be checked), and it is stolen by the President of Company “C”, you will be covered for up to $500,000 for each account, depending on the circumstances. Example: If a husband and wife have a joint account it is covered up to $500,000, if the each have additional retirement accounts in their separate names, the retirement accounts each are covered up to $500,000. Here is the SIPC insurance breakdown.
WHAT ARE THE ADVANTAGES OF INVESTING IN A MUTUAL FUND?
With a mutual fund you will get professional management, diversification, an affordable investment, and it is liquid. This is one of the main reasons that I encourage investors to invest in mutual funds, after reading my frequently ask questions about mutual funds. It only takes a little research and study to master mutual funds, but because there is a learning curve I encourage you to master them first.
WHAT ARE THE DISADVANTAGES OF INVESTING IN A MUTUAL FUND?
You still have costs even when returns are negative, you don’t control the investments totally, you don’t know for sure if the price will go up after you purchase – but after research you can verify that you are getting a quality mutual fund where there is a good chance the price will rise in the future. If you invest on your own you can keep cost low and more money will go to you, but if you go with a broker, you will be required to pay brokers fees which are sometimes hidden and costly.
YOU CAN EARN MONEY FROM YOUR MUTUAL FUND IN THREE WAYS
Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.
Capital Gains Distributions — The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors. Most mutual funds pay money into your mutual fund account yearly, a few pay on a quarterly basis. This means if you pull your money from your mutual fund that pays out capital gains and dividends at years end, you will lose your profits. So, be patient, and know your payout date.
Compounded Returns – unlike simple interest accounts the interest on top of the dividends and capital gains will compound year after year, giving you compounded interest.
WHAT IS THE NAV OF MY MUTUAL FUND
Increased NAV (Net Asset Value) — If the market value of a fund’s portfolio increases (from dividends and capital gains), and after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment. The more the NAV increases, the more money your investment will be worth. The NAV value can fluctuate from month to month or year to year, the important point to look at is that it has a net increase over time.
You have two choices:
Let someone else manage your money and end up with little or nothing OR learn some simple basic rules that could turn a little into a lot over time. I provide you with all the help you need in my eBook on Mutual Funds. I even give a 30-minute free clarification session after you read this article. The eBook I have written is clear and concise, after you finish it you will understand how to efficiently invest in mutual funds.
Lois Center-Shabazz | Course Delta Agency
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